Jordan Enterprises estimated the contribution margin (P - MC)/P for its Air Express model of basketball shoes to be 40 percent. Based on market research and past experience, Jordan estimates the following relationship between the sales for Air Express and advertising/promotional outlays:
Advertising/Promotional Outlays Sales Revenue
$500,000 $4,000,000
$600,000 $4,500,000
$700,000 $4,900,000
$800,000 $5,200,000
$900,000 $5,450,000
$1,000,000 $5,600,000
a) What is the marginal revenue from an additional dollar spent on advertising if the firm is currently spending $1 million on advertising?
b) What level of advertising would you recommend to Jordan's management?